Why is Iraq so poor?

Why is Iraq so poor?

A series of chilling photographs showing homeless people sheltering from severe winter cold in Iraq went viral on social media last week, as the government admitted that poverty rates were rising fast in the oil-producing nation.

Iraq has experienced increasing poverty in recent years, but Iraqis were shocked by the images of homeless families resorting to living and sleeping on the streets and braving freezing winter conditions.

Violence, civil conflicts and the war against the Islamic State (IS) terror group are obviously damaging, but bad governance and corruption are also largely responsible for Iraq falling into the poverty trap.

Iraq’s Ministry of Planning has said that the country’s poverty rate went up to 22 per cent of the population in 2016, in comparison with its own statistics of 15 to 17 per cent in 2014.

Abdul-Zahra Al-Hindawi, the ministry’s spokesperson, attributed the rise to the campaign against IS militants and the lower international oil prices.

Quoting a ministry survey, Al-Hindawi said the poverty rate varied among Iraq’s provinces. While the Sunni provinces seized by IS had been hardest hit with a poverty rate as high as 40 per cent, the Shia provinces in the south had registered a 31 per cent poverty rate, he said.

In the capital Baghdad, the poverty rate had reached a record of about 13 per cent, the report said, while the autonomous Kurdistan Region had fared a little better with a poverty rate of 12 per cent.

Al-Hindawi did not disclose further details, but previous reports by the ministry had described poor people in Iraq as those who lacked “basic food and other living essentials.”

Based on these figures, this would mean that out of Iraq’s 38 million or so citizens, more than 10 million individuals are living below the poverty line.

But while these indicators remain chilling, many experts, officials and international organisations have been questioning the statistics announced by the government, calling them “fuzzy” and suggesting that the number of poor people in Iraq is increasing further.

For example, the United Nations Development Programme (UNDP) reports on its Website that 23 per cent of Iraqis are living on less than $2.20 a day, its criteria for poverty.

Iraqi Minister of Planning Salman Al-Jumaili said on 18 December that the poverty rate in the country had hit a record of 30 per cent, which he attributed to Iraq’s “shrinking economy.”

In Kurdistan, Mahmoud Othman, the head of the government statistics department in Suleimaniya, was quoted by local media Ekurd.net on 28 December as saying that the poverty rate had hit the autonomous region hard, increasing more than four times since 2013 from three per cent to 15 per cent of the population.

Among the main causes of Iraq’s widespread poverty is the weak economy. The World Bank says the Iraqi economy is “facing severe and pressing challenges due to the decline in oil prices in 2015 and 2016”. The UNDP says that some 99 per cent of Iraq’s revenue is generated by the oil sector.

According to the World Bank, the fall in oil prices “has severely dented growth, diverted resources away from productive investment and increased poverty, vulnerability and unemployment.”

“Private consumption and investment remain subdued due to an unstable security and political situation and a poor business environment,” it said in a recent report.

“The standard of living has deteriorated, and a noticeable share of the population has fallen into poverty or is extremely vulnerable to falling into poverty,” the Bank concluded.

Iraq’s economic woes have manifested themselves among other indicators in falling government spending on social welfare, deteriorating standards of living and growing unemployment.

The government-run Public Distribution System that provides the only safety net for the vast majority of the poor by providing them with some essential food items, such as sugar, wheat and rice, has been reduced.

Iraq’s food-rationing system was set up in 1995 as part of the UN’s oil-for-food programme following Iraq’s invasion of Kuwait 17 years ago.

Yet, the system has been crumbling since the US-led invasion of Iraq in 2003 due to poor management and corruption. Many ration-card holders have been left largely uncovered by the public safety net which used to provide basic commodities.

A new national poverty targeting programme, designed on the model of Egypt’s Poor Support Fund and aimed at reforming the social security network, has largely failed to provide enough aid to poor families.

On the other hand, growing unemployment remains another key reason behind the rising poverty rates. Iraq has one of the lowest employment-to-population ratios in the region, even among male workers.

According to the UNDP, 18 per cent of young people (15-24 years) are unemployed. An Iraqi parliamentary committee reported last year that unemployment among young people could be as high as 40 per cent.

Since 2015, the oil-price slump has led to a reduction in employment by an estimated 800,000 people, with little hope that Iraq’s faltering economy will grow enough to produce new jobs in the next few years.

Another cause for the increasing poverty is political instability. The World Bank has suggested that the IS insurgency has contributed to a sharp deterioration in economic activity and has rapidly increased fiscal and current account deficits.

As a result of the ongoing conflict, the death toll continues unabated, with casualties reaching 16,361 in 2016, according to the Iraq Body Count, a civil-society organisation. The United Nations reported inconclusive civilian casualties of 19,266 in 2016, with 6,878 killed and 12,388 wounded.

The widespread insecurity in the country since 2014 has also led to a major humanitarian crisis, with 10 million people in need and over 3.4 million internally displaced.

The capture by IS militants of major Sunni-dominated provinces in Iraq and the campaign to push them back has triggered mass displacements that have driven more people out of work.

The third, and probably main reason behind the increasing poverty in Iraq, lies in mismanagement, inefficiency and corruption in the government.

Since 2003, Iraq has ranked among the top most corrupt countries in the lobby group Transparency International’s index of corrupt nations. Corruption and bad governance have created a black hole in Iraq’s economy, particularly by reducing business confidence and investment.

Graft, bribery, extortion and the abuse of power in the public and private sectors have been blamed for shortages in businesses investing in Iraq, thus reducing job opportunities and deepening the poverty gap.

Of course, the political turmoil will continue to impact the Iraqi economy and deepen the crisis even if the Shia-led government succeeds in expelling IS from the major Sunni-dominated provinces.

After the liberation of these areas an expanded reconstruction programme will await the cash-strapped government in order to achieve stabilisation.

The failure of the government to achieve comprehensive national reconciliation with the country’s Sunni minority and the continuation of the political uncertainty portends further economic decline, consequently increasing hardship especially among the most vulnerable social strata.

Indeed, the overall picture of the Iraqi economy looks bleak even if oil prices rise and the country continues to produce as many as three million barrels of oil per day, since the reconstruction and readjustment programme is expected to add additional pressure to the ailing economy.

After nearly 14 years of political and economic drift, the post-IS Iraqi economy is not promising. At best, it will give Iraqi policy-makers some breathing space in order to forestall collapse.

Unless the country’s political class starts serious reform to end the corruption and mismanagement, Iraq’s economy will continue to fail, and unemployment and poverty will continue to worsen in the country, with many more people forced to live in shanty towns or on the streets.